Institutional Framework for Auctions in Mexico

  • Featured Story

    Power Sector Reform Pays Off

    Competitive procurement deploys clean energy capacity efficiently, creates market opportunities for investors, and improves the lives of communities suffering from high energy costs and unreliable service. Read the story

As part of its 2013 constitutional reform, Mexico implemented a major restructuring of its power sector which, with assistance from USAID, resulted in some of the world’s most competitive renewable energy prices.

Reverse Energy Auctions

Reverse auctions lie at the heart of Mexico’s reforms and are viewed as the global standard for the procurement of energy generation in both developed and developing countries. Bidders in Mexico’s technology-neutral energy auctions participated in the following categories: firm generation capacity, clean energy, and clean energy certificates (these are tradable certificates granted to generation companies that produce clean energy, in which one certificate equals a MWh of clean energy).

USAID Support

USAID, through the Scaling Up Renewable Energy (SURE) project, provided critical assistance in the design and development of Mexico’s auctions through an Auctions Working Group that included the energy ministry (SENER), regulator (CRE), market and system operator (CENACE), and major utility (CFE). USAID supported the development of the first auction’s bidding rules, the development and operation of an auction IT system in the first two auctions, and provided pre-qualification verification services and support to the design of clean energy certificates as well as the country’s first transmission auction.

Results

The first three long-term auctions, one held in 2016 and two held in 2017, have resulted in progressively lower prices. The first auction averaged $47.70 per MWh, the second $33.47 per MWh, and third $20.57 per MWh. Moreover, the third auction set a new world record for low-cost wind generation with a price of $17.70 per MWh. Total investment in the auctions will be roughly $9 billion, with investors from 12 countries, and more than $1 billion in energy projects awarded to U.S. firms.

Best Practices

The Mexico auctions follow a trend of best practice auction design in Latin America. Argentina, Brazil, Chile, and Peru have all held successful auctions in recent years. The low prices obtained in Mexico’s auctions are the result of a confluence of factors, including a transparent competitive tender process; a robust legal, financial and technical pre-qualification process; and guarantees to protect participants from known and potential liabilities. The auction design also addressed the thorny issue of foreign exchange risk, a key element in attracting the interest of diverse international players such as utilities, private equity funds and turbine manufacturers, by allowing bidders to index their offers in either USD or Mexican pesos. This design feature made it easier to obtain funding and increased project bankability in comparison with more restrictive local financing options.

Market Evolution

As the auction design process continues to evolve in Mexico, new market studies will assess specific locations and technologies, including energy storage. Storage is a critical component to enable effective variable renewable energy integration. For example, a large battery system in the Baja Peninsula could potentially enhance solar self-consumption and defer a costly transmission network upgrade. Decreasing cost trends among commercially deployed battery storage technologies are projected to continue over the next five years. Grid modernization efforts will continue to create myriad business opportunities for software and engineering firms, solar and wind generation equipment manufacturers, and electric utilities exploring new business models.

Resources

  • CENACE

    Long Term Auctions Market Information System

    Mexico’s National Center of Energy Control (CENACE) provides this website of official resources for parties interested in participating in the country’s long-term auctions. Visit the website

  • SENER

    National Inventory of Clean Energy (INEL)

    The INEL platform from the Mexican Ministry of Energy (SENER) provides information on annual renewable energy generation and the estimated potential for the different renewable energy sources. Access the platform

  • SENER

    National Atlas of Areas with High Clean Energy Potential (AZEL)

    The AZEL platform from the Mexican Ministry of Energy (SENER) identifies and evaluates areas with high renewable energy potential. Access the platform

  • Reference

    Action Plan for Effective Implementation of Renewable Energy Projects and Associated Social Aspects

    USAID worked with a range of stakeholders to address legal and governance gaps in management of social issues arising from energy projects. Read the plan

  • Guidance

    Bidding Terms Table of Contents for SLP-1/2017

    USAID, under its technical assistance to Mexico, is providing this unofficial English translation of the table of contents of the auction’s bidding terms as a general reference. View the document

  • Guidance

    Invitation to Long-Term Competitive Bid SLP-1/2017

    USAID, under its technical assistance to Mexico, is providing this unofficial English translation of the auction’s bidding announcement as a general reference. Read the announcement

  • Guidance

    Long-Term Competitive Bidding Manual

    USAID, under its technical assistance to Mexico, is providing this unofficial English translation of the bidding manual as a general reference. Read the manual

Emerging markets are leapfrogging the developed world in the pursuit of renewable energy, expanding energy access to millions of people around the globe. Along the way, they are reinventing the national electric grid and developing the policies and institutional, regulatory and technical solutions needed to provide sustainable, reliable electricity for future generations.

USAID advances these efforts through the Scaling Up Renewable Energy (SURE) project, assisting partner countries in accessing the technical assistance needed to rapidly and effectively implement five critical interventions for scaling up renewable energy rapidly and effectively — strategic energy planning, grid integration, competitive procurement, renewable energy zones and smart incentives.

Last updated: February 03, 2020

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